I know a winner when I see one. And for me, I see a winner in Lululemon Athletica (NASDAQ:LULU) stock.
Most people are familiar with Lululemon — it’s the original “athleisure” company. Lululemon is the company that made yoga pants and leggings trendy.
And if you’ll remember, Lululemon was also my entry in InvestorPlace’s “Best Stocks for 2019” contest. That’s a contest that I won, of course! LULU stock gave us a 91% bump in 2019.
But 2020 is a different time – the market collapsed into a bear market thanks to the coronavirus pandemic, erasing all the gains investors enjoyed over the last three years. Lululemon was forced to close down stores in China when the virus began there, and now it’s shut down in North America, too.
Am I sticking with Lululemon in today’s bear market?
You bet I am.
LULU Stock at a Glance
Lululemon is trading these days at $170 a share – that’s down roughly 28% year-to-date. But over a longer term, Lululemon has given investors a 150% return over the past five years, and before the fear-induced market crash hit last month, Lululemon was up nearly 290% over five years!
The athleisure company is expected to report fourth quarter and full-year 2019 earnings on March 26 — analysts are expecting earnings of $2.24 per share, versus $1.85 per share in the same quarter a year ago. Lululemon has a solid history of beating expectations — it surpassed analysts’ expectations by more than 5% the last two quarters — so I’m expecting another beat here.
But investors will likely be much more interested in LULU’s forecast for Q1 and for 2020, as the Covid-19 coronavirus outbreak will dominate the market cycle this year.
Currently, Lululemon’s stores in North America are closed and will remain that way at least through March 27. Online sales through the company website are still available.
Here’s CEO Calvin McDonald:
“We are living in uncertain times and we’re learning more about this virus every day. We are taking this step to help protect our global community, guests and people, and ensure we are doing our part to prevent the spread of COVID-19. During this time, Lululemon employees will continue to receive pay for all hours they have been scheduled to work and have access to Lululemon’s Global Pay Relief plan. I’m proud of how our teams are working to create space for our guests to connect through yoga and meditation classes online.”
Shutting down its North America storefronts will definitely weigh on Q1 and 2020 guidance, but there are plenty of reasons to believe that Lululemon’s stock will be able to withstand the bear market and bounce back quicker than other stocks. Here are three reasons why I’m sticking with LULU:
The business model is a winner. Unlike other athleisure companies, but similar to Nike (NYSE:NKE), Lululemon doesn’t flood the market with merchandise. It markets directly to its consumers, cutting out the middleman by offering its products largely online and in its stores. And it can charge a premium for products that are in demand or are seen as trendy.
It controls costs. One of my favorite things about Lululemon is its operating margin growth. And that’s attributed in part to the company keeping production costs down because it doesn’t have items sitting on retailers’ shelves. And it can add new products strategically.
It promotes some exclusivity. If you love wearing Lululemon’s trendiest athletic wear, you’re probably interested in its membership club. The company offers its members some exclusive perks — but for investors, the best part is that Lululemon has a recurring revenue stream coming in. That’s something to cheer about.
I have Lululemon stock ranked as a strong buy with an “A” rating in my Portfolio Grader. It is also a staple of my High-Growth Investments Buy List for Growth Investor.
If you’d like to see how to buy this High-Growth Investment for your portfolio, click here to give Growth Investor a try.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
